EUR/USD: US inflation, geopolitics, the French budget...

The EUR/USD remained under pressure at the end of the week, under the effect of several cumulative factors: the estimated slowdown in the pace of monetary easing by the Fed, the particularly harsh and unjust French 2025 budget, and the geopolitical situation in the Middle East.

American inflation is a patient still under surveillance. The CPI (Consumer Price Index) were therefore published yesterday, and it was undoubtedly the statistical highlight of the week. Retail prices rose by 2.3% in September, at an annualized rate, in the broadest basket of products, where the consensus predicted an increase of 2.2%. Enough to further underline, after last Friday's very muscular employment report, the impressive resilience of the American economy after so many months of high rates.

"Concerning the composition of inflation, energy prices continued to decline (-6.8%), encouraged by a sharp drop in gasoline and fuel oil prices, which somewhat eased the cost of living. However, food and transportation costs continue to exert upward pressure, with increases of 2.3% and 8.5% respectively. This imbalance between the components of inflation makes the Fed's task of stabilizing prices without seriously impacting economic growth more complex," says Quasar Elizundia, Expert Research Strategist - Pepperstone.

In the process, 10-year Treasuries, i.e. yields on 10-year Treasury bonds, rose even further above 4%. And the odds of seeing the Fed lower its rates by 25 basis points in less than a month rose to nearly 89%, compared to 11% for a more pronounced drop of 50 basis points. It is this trajectory of rate cuts, mechanically revised, that favors the greenback against the single currency.

Furthermore, the Barnier government presented the Finance Bill (PLF) for 2025 on Thursday. An austerity budget project marked by 60 billion in savings or new taxes, mainly targeting the wealthiest. A project that will now be discussed, and amended if necessary, in the National Assembly.

In terms of geopolitics, "the spiral in the Middle East is accelerating," notes Geoffroy Landoeuer, Director of Financial Management at Turgot AM. "In Lebanon, Israel managed in just a few days to injure thousands of Hezbollah soldiers and decapitate its general staff. While the Iranian response was feared ? it finally materialized on October 1st ? oil prices, which fell sharply over the period (-9%) due to the deteriorating international economic situation, will have to be monitored..." Enough to weigh on the barometer of risk appetite that the single currency represents.

Right now, the EUR/USD is trading at $1.0939.

KEY CHART ELEMENTS
The oblique support line (drawn in black) gave way in a significant and increasing level of volatility. The 50-day moving average (in orange) also gave way quickly, the bearish message is reinforced. The next graphical event to watch is the imminent crossing of two remarkable moving averages, at 20 and 50 days.

MEDIUM-TERM FORECAST
In view of the key graphic factors that we have mentioned, our opinion is negative in the medium term on the EUR/USD.

Our entry point is at $1.0947. The price target of our bearish scenario is at $1.0663. To preserve the capital invested, we advise you to position a protective stop at $1.1013.

The expected profitability of this strategy is 284 pips and the risk of loss is 66 pips.